FAI asked Chris Dunford to tell us about books and papers that really made a difference in how he thought about savings and the poor. This is his response:

Portfolios of the Poor: This book has changed the “narrative” in the microfinance community more than any other since the founding of the microfinance industry. Though the effort to promote a “client-centered” approach (a.k.a. demand-driven rather supply- or product-driven) has been concerted for over a decade, this book is what made clear and compelling both the importance and implications of starting with an understanding of what the client is already doing. But it goes further to help us understand what the poor are doing, not just those who step forward to be clients of current microfinance services. The book’s orientation and messages liberate us from the institutional straightjacket to revisit fundamental questions of what we might do to help the poor help themselves deal with financial issues. For me and my colleagues at Freedom from Hunger, and apparently for so many others, the book resonates with the stories we’ve been hearing from clients for decades and gives us a broader perspective in which to situate those stories.

What has this to do with savings? The composite picture from financial diaries gives us vivid understanding of the roles and variety of savings in the financial management tool kit of the poor. It also smashes the glib contention that “the poor need savings not credit” or that “the poor cannot use credit.” In fact, the poor are using a variety of saving and borrowing tools all the time (but often not the kind of credit products that MFIs have so far conceived to make a satisfactory return on investment). The book does not plumb the depths of poverty, but it seems logical by extension that even the very poor (many if not most) are willing and able to use both saving and borrowing opportunities that are suited to their needs and constraints. At Freedom from Hunger, the book’s perspective (and affirmation of our own experience) has strengthened our confidence to explore savings-led microfinance that is not constrained (or sustained) by microfinance institutions and to redouble our effort to make voluntary savings a key component of village banking supported by MFIs and similar entities. As Stuart Rutherford has long maintained, saving and borrowing (in all their variety of forms) are two sides of the same coin.

I admit that as President of Freedom from Hunger for over 20 years I often depended on my colleagues to read for me! In particular it was marc bavois (who has an allergy to the upper case), Megan Gash and Bobbi Gray who persuaded me to read Portfolios of the Poor[LINK TO WEBSITE] by sharing their excitement about its fresh perspective. In the same way, this paper on the women’s savings group program started by PACT in Nepal was recommended to me because of its demonstration of impressive effects that savings groups, combined with education for literacy and business, can have over time. My colleagues Laura Fleischer Proaño, Megan Gash and Amelia Kuklewicz did a similar retrospective study of savings groups in Ecuador, with similar results.

What is most striking to me in both studies is the durability of women’s savings groups over many years with virtually no support, which reflects the value these women attach to their groups and the financial and social services these groups provide the members. Also striking is the spontaneous innovation of the groups as they evolve over the years. They have come up with their own solutions to inevitable problems and found creative ways to make the groups serve a greater variety of purposes. The groups started with outside support (from PACT and Peace Corps) but spontaneously inspired and actively helped new groups form with women members who never saw a staffer from either outside organization. In short, savings groups appear to be quite robust and even self-replicating without much more than start-up guidance. This is a very different notion of growth and sustainability in microfinance.

Considering the book and the papers together, I am amazed that we ever thought the poor couldn’t or wouldn’t save they own money. Why didn’t we know this before? How long have we been working with the poor?